Monday, November 8, 2010

Debt Burden Replaces Tax Burden?

Over the past decade, "lightening the peasants' burden"--reducing taxes and fees assessed on peasants--has been one of official mantras for rural officials. The "agricultural tax" was phased out nationwide between 2004 and 2006 and officials are not allowed to impose arbitrary fees and taxes.

The investigation will concentrate on village administration and finances, including assessments, fund-raising, and contributions of labor for public works and infrastructure projects. It will investigate assessments or requests for donations from village organizations by government departments or units.

While the elimination of taxes on peasants has been publicized as a great benefit to farmers, the reduction of tax revenue left rural governments seriously short of funds to operate. At the same time, there is a big campaign to "build a new socialist countryside" and upgrade all kinds of infrastructure. Consequently, many (most?) villages and townships are mired in debt. This problem is not discussed much.

Materials from a communist party official from Shijiazhuang in Hebei Province distributed for a meeting on village administration reveal the serious scope of the problem. He says 86.5% of Shijiazhuang's 4,351 villages have debts totaling 1.6 billion yuan, the equivalent of $235 million. And my understanding is that villages aren't legally supposed to borrow money.

The official links the debt problem to the tax elimination. He says the average village's collective income fell from 73,000 yuan to 28,000 yuan after the agricultural tax was canceled. He estimates that a village, on average, needs about 120,000 yuan for village affairs, schools, running village enterprises and other expenses. The official says, "Village debts seriously affect their ability to develop."

There has been a big influx of subsidies from the central government for infrastructure building, education fees, and "awards" for grain- and pork-surplus counties, but not enought to fill the financial hole. There is also an effort to eliminate the township level of government and cut back on public payrolls, but this is not moving very fast. The outstanding debts owed to rural credit cooperatives, banks, government departments, and individuals leave them short of funds too.